9MFY20 results came below market expectations as the MCO disruption lasting six weeks had squeezed profits harder than we anticipated. It missed its traditional bi annual dividend of 6.0 sen for the first time in 10 years. Lowered FY20/21E earnings by 15%/3%. Overall, we are still optimistic on GAMUDA which will remain as the biggest beneficiary of any pump priming initiatives – hence, maintain OP with lowered TP of RM4.10.

Below expectations. Despite already lowering our assumptions earlier this month (through our sector report), 9MFY20 CNP of RM389m still came in below at 68%/63% of our/consensus forecasts due to worse than-expected MCO disruptions to all operations.

Missed its traditional bi-annual 6.0 sen dividend for the first time since 2010 due to the weak profits. To conserve cash amidst this crisis, we believe GAMUDA will also miss their 1st interim dividend in FY21 which is typically announced in Dec along with 1Q results.

Highlights. 3QFY20 CNP of RM40.2m was down 77% QoQ due to the MCO disruptions which had caused revenue to dip 50% on the back of fixed costs. Construction and property segments saw PAT dwindled 89% and 81%, respectively, from lower progress of works while its concession was down 61% as toll traffic fell 80-90%. 9MFY20 CNP was down 25% YoY due to the same reasons.

3Q is the worst and 4Q will be better. 4QFY20 only saw two weeks of disruptions (vs. six weeks in 3Q). Hence, we expect revenue run-rate of 4QFY20 to be 80% of a normalized level vs. 3Q’s 50%. Most one-off costs were also sunk in 3QFY20.

Management’s property sales target reduced to RM2b (from RM4b). Management is confident the RM2b is achievable backed by outstanding bookings of RM1.2b. Unbilled sales of RM3b would last the group 1.5 years.

Current order-book stands at RM7.5b with the bulk of it derived from MRT2. In 3QCY20, GAMUDA-NAIM JV had secured a Sarawak trunk road project worth RM224m. In our replenishment forecast, we have built in RM2.5b worth of replenishments from MRT3 for FY21.

Reduce FY20/21E earnings forecasts by 15%/3%, respectively, after (i) reducing margin assumptions for construction and property projects and (ii) reducing FY20E property sales target to RM2b (from our initial forecast of RM2.4b).

Maintain OUTPERFORM with lowered SoP-based TP of RM4.10 (from RM4.30) after adjusting earnings and lowering the probability assumptions of potential projects i.e. HSR, Penang LRT which is built into our valuations. We continue to like GAMUDA for their dominant position in the construction space in Malaysia which is bound to benefit from any pump priming initiatives.

Risks to our call include: (i) no MRT3 project, (ii) wide resurgence of Covid-19, and (iii) a snap election.

Source: Kenanga Research - 25 Jun 2020